NeuStar Awaits Telecom Database Contract Decision

Shares of NeuStar (NSR) have doubled since former AOL executive Lisa Hook became chief executive in 2010, as she moves to diversify the company while also securing renewal of its major contract.

NeuStar still garners most of its revenue from a telecom industry contract for managing a database used to route phone calls and text messages, which is up for renewal. The Sterling, Va.-based company, however, has become more than a one-trick pony.

NeuStar's acquisition of Targus Information for $650 million in 2011 proved to be a good move, analysts say. Targus provides caller identification services as well as consumer sales-leads to business customers.

NeuStar, a former subsidiary of Lockheed Martin (LMT), also has increased its stock repurchase program since Hook took the helm.

"She should get an A for the short time she's been CEO," said John Bright, an analyst at Avondale Partners. "The Targus Info acquisition has been a great success. They've taken a company that had great visibility (on revenue) and good cash-flow and have added value by using that cash to buy back shares and make a solid acquisition."

Contract Expires June 30, 2015

Hook is facing a big test, though. NeuStar's contract to manage the number portability administration center, or NPAC, database is up for renewal. It expires June 30, 2015.

Ten telecom companies are reviewing bids. They're expected to choose the vendor for the next contract this summer. The Federal Communications Commission is then supposed to ratify their selection by Sept. 20.

NeuStar's expertise in managing that database gives it a good chance to win renewal, analysts say. NeuStar has been the NPAC database operator since 1996. The names of the bidders have not been released, but analysts say Telcordia probably is among them. Now owned by telecom gear maker Ericsson (ERIC), Telcordia under another name had been a research unit of the regional Bells.

More than half of NeuStar's 2012 revenue of $831 million came from the NPAC contract. Revenue growth tied to the NPAC database, though, is slowing.

Under its existing contract, NeuStar's NPAC revenue will rise 6.5% in 2013, 2014 and part of 2015. Telecom companies are expected to be tough negotiators in renewing the NPAC contact. Analyst Bright says revenue growth could fall to 3% annually by the end of the next contract.

There's a sizable short interest in NeuStar's stock, about 10% of its float. Bright says there is a risk NeuStar could lose the NPAC contract or that the contract could be split between two companies. Short-sellers, who make money if a stock declines, might also be betting that "terms of the new contract might disappoint," Bright said.

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